What are Balanced Advantage Funds (BAF) & How to Invest in Them?
Are you looking for a mutual fund that can help you navigate market volatility while potentially providing higher returns? Look no further than Balanced Advantage Funds! These funds dynamically adjust their asset allocation between equities, debt, and cash, based on market conditions, offering investors the best of both worlds.
In this blog, we’ll take a closer look at how Balanced Advantage Funds work, which balanced advantage fund is best, their advantages and disadvantages, and how to select the right fund for your investment needs.
What is a Balanced Advantage Fund?
Balanced advantage funds, also known as dynamic asset allocation funds, are a category of the best Hybrid Funds. They aim to strike a balance between equity and debt investments based on market conditions and the fund manager’s discretion.
The fund is managed by a professional fund manager. Has the freedom to shift between asset classes like stocks and bonds to capitalize on market opportunities or manage risk. The specific asset allocation of the top balanced mutual funds can vary over time, making it suitable for investors seeking a dynamic and actively managed investment strategy. This flexibility can help mitigate risks and potentially enhance returns compared to fixed allocation funds.
What is Balance Advantage Fund Asset Allocation?
Here is a general guideline for the asset allocation of the best balanced advantage investment:
- Equity: These funds invest a portion of their assets in equities, which can range from 30% to 80% or more of the total portfolio. The equity allocation provides the potential for capital appreciation and higher returns.
- Debt: The remaining portion of the portfolio is invested in debt securities, which can include types of bonds such as government bonds, corporate bonds, money market instruments, and other fixed-income securities. This debt allocation helps provide stability and income to the fund.
- Cash or Cash Equivalents: In some cases, these funds may also hold a small percentage in cash or cash equivalents to meet liquidity requirements or take advantage of opportunities in the stock market.
Top Balanced Advantage Funds For You to Invest in 2024
Here’s the list of 10 best balanced advantage funds:
| Balanced Advantage Fund | Fund Size (in Cr) |
|---|---|
| HDFC Balanced Advantage Fund Direct Plan-Growth | ₹77,011 |
| Tata Balanced Advantage Fund | ₹8,517 |
| ICICI Prudential Balanced Advantage Fund Direct Plan Growth | ₹49,102 |
| Axis Balanced Advantage Fund | ₹1,990 |
| Quant Dynamic Asset Allocation Fund | ₹607 |
| HSBC Balanced Advantage Fund | ₹1,399 |
| Mirae Asset Balanced Advantage Fund | ₹1,493 |
| Edelweiss Balanced Advantage Fund | ₹10,349 |
| UTI Balanced Advantage Fund | ₹2,654 |
| SBI Balanced Advantage Fund | ₹27,488 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data on the balanced advantage funds in India in the list is from 27th February 2024. However, for real-time updates on share price and market trends, visit the smallcase stocks collection today!
Balanced Advantage Fund – Overview
Let’s have a look at the top 10 balanced advantage funds in detail.
HDFC Balanced Advantage Fund Direct Plan-Growth
The HDFC Balanced Advantage Fund Direct Plan-Growth, a Dynamic Asset Allocation mutual fund scheme by HDFC Mutual Fund. Has a history spanning 11 years and 1 month since its launch on January 1, 2013. With assets under management (AUM) totaling ₹77,011 Crores as of December 31st, 2023, it falls within the medium-sized category for funds of its kind. This fund boasts an expense ratio of 0.75%, aligning closely with industry standards. Presently, it allocates 58.43% to equity and 27.10% to Debt.
Over the last 1-year period, HDFC Balanced Advantage Fund Direct Plan-Growth has yielded returns of 41.98%. Notably, the fund has shown the ability to double invested capital every 3 years.
Tata Balanced Advantage Fund
The Tata Balanced Advantage Fund Direct – Growth is a mutual fund scheme managed by Tata Mutual Fund, employing Dynamic Asset Allocation strategies. With a history spanning 5 years and 1 month since January 28, 2019, it currently holds assets under management (AUM) totaling ₹8,517 Crores making it a medium-sized fund within its category. Notably, the fund boasts a competitive expense ratio of 0.3%, lower than the industry standard for Dynamic Asset Allocation funds. Presently, it maintains a 47.86% allocation to equity and 27.42% to debt.
Over the past year, Tata Balanced Advantage Fund Direct – Growth has delivered impressive returns of 25.17%. Thus, its track record of doubling invested capital every 4 years.
ICICI Prudential Balanced Advantage Fund
ICICI Prudential Balanced Advantage Direct-Growth, a Dynamic Asset Allocation mutual fund scheme by ICICI Prudential Mutual Fund was commenced in 1993. With assets under management (AUM) totaling ₹54,142 Crores, it falls within the medium-sized fund category. Sporting an expense ratio of 0.87%, which exceeds the norm for similar Dynamic Asset Allocation funds, the fund currently allocates 41.77% to equity and 23.40% to Debt.
Over the past year, ICICI Prudential Balanced Advantage Direct-Growth has yielded returns of 22.08%. Remarkably, the fund has effectively doubled invested capital every 4 years.
Axis Balanced Advantage Fund
The Axis Balanced Advantage Fund Direct – Growth, managed by Axis Mutual Fund, is a Dynamic Asset Allocation mutual fund scheme. Established on August 1, 2017, it has been operational for 6 years and 7 months. The fund boasts assets under management (AUM) totaling ₹1,990 Crores, positioning it as a medium-sized fund within its category. With an expense ratio of 0.72%, it aligns closely with industry standards for Dynamic Asset Allocation funds. Presently, the fund exhibits a 70.01% allocation to equity and 31.11% to Debt. Over the last 1 year, the Axis Balanced Advantage Fund Direct – Growth has yielded returns of 28.63%. Since its inception, it has delivered an average annual return of 10.84%.
Quant Dynamic Asset Allocation Fund
Quant dynamic asset allocation fund is a Hybrid Mutual Fund scheme launched by Quant Mutual Fund. Launched on April 13, 2023, the fund manages assets worth ₹607 Crores, positioning it as a medium-sized fund in its category. With an expense ratio of 0.77%, slightly higher than the industry average for Dynamic Asset Allocation funds, it has delivered 65.13% returns since inception. Currently, the fund allocates 96.22% to equity and 4.09% to Debt, with investments primarily focused on sectors like Financial, Energy, Automobile, Metals & Mining, and Insurance. Compared to other funds in the category, it maintains relatively lower exposure in Financial and Energy sectors.
HSBC Balanced Advantage Fund
The HSBC Balanced Advantage Fund Direct-Growth, a Dynamic Asset Allocation mutual fund scheme with assets under management (AUM) totaling ₹1,399 Crores. It stands as a medium-sized fund within its category. The fund carries an expense ratio of 0.78%, slightly higher compared to most other Dynamic Asset Allocation funds. Presently, it maintains a 67.60% allocation to equity and 30.99% to debt.
Over the past year, the HSBC Balanced Advantage Fund Direct-Growth has yielded returns of 25.08%. Notably, the fund has demonstrated the ability to double invested capital every 7 years.
Mirae Asset Balanced Advantage Fund
The Mirae Asset Balanced Advantage Fund Direct-Growth is a Dynamic Asset Allocation mutual fund scheme offered by Mirae Asset Mutual Fund. With assets under management (AUM) totalling ₹1,493 Crores, it falls within the medium-sized fund category. The fund’s expense ratio stands at 0.69%, aligning closely with industry standards for Dynamic Asset Allocation funds. Presently, it maintains a 51.95% allocation to equity and 23.81% to debt. Over the past year, the fund has yielded returns of 25.34%, while since inception, it has delivered an average annual return of 16.33%.
Edelweiss Balanced Advantage Fund
The Edelweiss Balanced Advantage Fund Direct-Growth, a Dynamic Asset Allocation mutual fund scheme offered by Edelweiss Mutual Fund, has a track record spanning 11 years and 1 month, beginning its journey on 01/01/2013. With assets under management (AUM) totaling ₹10,349 Crores as of 31/12/2023, it is classified as a medium-sized fund within its category. Boasting an expense ratio of 0.52%, lower than many other Dynamic Asset Allocation funds, it demonstrates cost-effectiveness. Currently, the fund allocates 72.69% to equity and 22.88% to Debt.
Over the past year, the Edelweiss Balanced Advantage Fund Direct-Growth has generated returns of 26.75%. Remarkably, the fund has doubled invested capital every 4 years.
UTI Balanced Advantage Fund
UTI Balanced Advantage Fund Direct – Growth, a Dynamic Asset Allocation mutual fund scheme offered by UTI Mutual Fund, has been operational for 7 months since its launch on 21/07/2023. As of 31/12/2023, the fund manages assets worth ₹2,654 Crores, positioning it as a medium-sized fund within its category. Notably, it maintains a competitive expense ratio of 0.45%, lower than that of most other Dynamic Asset Allocation funds. Presently, the fund holds a 50.95% allocation to equity and 30.28% to debt. In terms of equity allocation, the fund predominantly invests in sectors such as Financial, Technology, Automobile, Energy, and Consumer Staples.
SBI Balanced Advantage Fund
The SBI Balanced Advantage Fund Direct – Growth, a Dynamic Asset Allocation mutual fund scheme by SBI Mutual Fund, has been operational for 2 years and 6 months since its launch on August 31, 2021. It manages assets worth ₹27,488 Crores, positioning it as a medium-sized fund within its category. With an expense ratio of 0.72%, similar to most Dynamic Asset Allocation funds, it allocates 42.00% to equity and 22.03% to debt. Over the past year, the fund has yielded returns of 27.45%, and since its inception, it has maintained an average annual return of 14.17%.
How Does a Balanced Advantage Fund Work?
Balanced Advantage Funds (BAFs) work by dynamically allocating assets between equity and debt instruments based on market conditions. These funds use a quantitative approach to invest in a mix of equity, debt, and other assets. The objective of BAF funds is to provide investors with an asset balance between capital appreciation and downside protection.
The fund managers, especially of these top 10 balanced advantage funds use various valuation metrics, such as the PE ratio (Price to Earnings), P/B Ratio (Price to Book ratio), and dividend yield, to determine the market valuation of equities. Based on these metrics, they allocate assets to equity or debt instruments to maintain an optimum asset allocation ratio. For instance, if the equity market is undervalued, the fund manager will increase the indexed allocation towards equities, and if the market is overvalued, the allocation towards debt instruments will be increased.
Overall, the best balanced mutual funds can provide investors with a balanced approach to investing in the equity and debt markets, and are a suitable option for investors looking for a mix of capital appreciation and downside protection.
How to Select the Right Balanced Advantage Fund?
Here are some factors to consider when selecting the right & best dynamic asset allocation fund.
- Historical Performance: Analyze the performance of the over the past few years. And analyze how it has performed in various market conditions. The best performing balanced advantage fund with a consistent track record of delivering stable returns can be a good choice.
- Fund Manager’s Track Record: The fund manager’s expertise and experience can have a significant impact on the fund’s performance. Therefore, look for a fund manager with a proven track record of managing Balanced Advantage Funds.
- Expense Ratio: The expense ratio is the fee charged by the fund house for managing the fund. A lower expense ratio means higher returns for the investor. Hence, it is essential to choose a fund with a lower expense ratio.
- Fund Size and Liquidity: Consider the fund’s size and liquidity to ensure that the fund can handle inflows and outflows efficiently. A larger fund size may lead to reduced flexibility, while a smaller fund may face liquidity issues.
Additionally, you can also select the best balanced advantage fund monthly dividend.
Who Should Invest in a Balanced Advantage Fund?
Balanced advantage mutual funds are suitable for a wide range of investors, including;
Investor’s Risk Tolerance
Balanced advantage funds are suitable for investors who are willing to take moderate risks. These funds invest in a mix of equity and debt instruments, which provides a balance between potential returns and risks.
Investment Horizon
Investors who have a long-term investment horizon may consider investing in balanced advantage funds. Therefore, the best balanced mutual fund to invest in can be a balanced mix of equity and debt instruments, which helps to provide stability to the portfolio over the long run.
Financial Goals
The best balanced funds in India can be suitable for investors who have long-term financial goals. For instance, retirement planning, children’s education, or buying a house. These funds can help investors achieve their financial goals by providing a balanced mix of potential returns and risks resulting in a balanced portfolio.
How to Invest in the Best Balanced Funds?
Investing in the top balanced funds, also known as hybrid funds, is a straightforward process. Start by selecting the best balanced funds India that aligns with your financial goals and risk tolerance. Next, open an account with a mutual fund company or a brokerage platform if you don’t have one already. Then, decide how much you want to invest and choose the investment mode—either a lump sum or through a Systematic Investment Plan (SIP).
Afterwards, simply fill out the necessary paperwork, provide your KYC (Know Your Customer) documents, and make the investment. The fund manager will take care of the asset allocation between stocks and bonds, ensuring a balanced approach to grow your investment over time. Remember, it’s always a good idea to consult with a financial advisor if you’re uncertain about which Balanced Fund suits your needs best.
What’s the Return on Investment?
Balanced advantage fund returns can be quite attractive for investors looking for steady returns with lower volatility. The dynamic asset allocation strategy of BAFs helps in achieving this goal.
However, the returns depend on various factors, including the fund manager’s investment decisions, market conditions, and economic factors. In general, the best dynamic asset allocation funds have provided returns ranging from 8% to 12% in the long term, depending on the market cycle and fund performance.
Advantages of Investing in a Balanced Advantage Fund
Investing in the best dynamic asset allocation fund provides a lot of advantages to investors. Some of them are as follows:
- Dynamic Asset Allocation: The effective balanced advantage funds provide investors with the flexibility to switch their investments between equity and debt instruments based on market conditions. This ensures optimal allocation of funds and may potentially result in better returns.
- Hedging Against Market Volatility: These funds offer downside protection by automatically reducing exposure to equities during market downturns, which can help minimize losses and volatility.
- Potential for Higher Returns: Balanced advantage funds have the potential to generate higher returns than traditional fixed-income investments while also offering lower volatility than pure equity investments.
- Diversification Across Asset Classes: These funds invest in a mix of equities, debt, and other assets, which helps spread risk across various asset classes and reduces overall portfolio risk.
Disadvantages of Investing in a Balanced Advantage Fund
Yes, like any other investment, balanced advantage funds also come with their own set of disadvantages. Some of these are:
- Higher Expense Ratio: Balanced Advantage Funds have a higher expense ratio compared to pure equity funds. This is because these funds employ a dynamic asset allocation strategy, which requires active management and therefore higher costs.
- Limited Downside Protection: Although balanced advantage funds aim to provide some downside protection, they are not immune to market fluctuations. During a severe market downturn, these funds can also witness a decline in their NAV.
- Performance Depends on the Fund Manager’s Skill: The performance of BAFs is largely dependent on the skill and experience of the fund manager. A fund manager who does not make the right calls in terms of asset allocation and portfolio construction can result in lower returns for investors.
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To Wrap It Up…
The best Balance Advantage Funds can be an excellent investment option for you to build a diversified portfolio with dynamic asset allocation and hedging strategies. It offers the potential for higher returns while managing market volatility and downside risk.
However, investors must carefully assess their risk profile, investment horizon, and financial goals before investing in a Balanced Advantage Fund. Additionally, it is essential to consider factors like historical performance, fund manager’s track record, expense ratio, fund size, and liquidity while selecting the right fund.
FAQs
The top 5 balanced advantage funds include:
(a) HDFC Balanced Advantage Fund Direct Plan-Growth
(b) Tata Balanced Advantage Fund
(c ) ICICI Prudential Balanced Advantage Fund
(d) Axis Balanced Advantage Fund
(e) Quant Dynamic Asset Allocation Fund
There is no such hard and fast rule. However, it is advisable that balanced advantage funds must invest at least 65% of their assets in equity and at least 35% of their assets in debt.
Balanced advantage funds can be a good investment for the long term. They offer a mix of equity and debt exposure, which can help to reduce volatility and provide a smoother ride for investors. Balance funds can also generate attractive returns over the long term.
Yes, balanced advantage funds are taxable, especially capital gains and dividends.
Dynamic asset allocation funds are investment funds that adjust their asset allocations based on market conditions, aiming to maximize returns while managing risk.
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